Old Mutual Wealth has put forward to the government two proposals as alternatives to the reduction in the money purchase annual allowance (MPAA).
The company stated it feels strongly that the money purchase annual allowance reduction from £10,000 to £4,000 should not be implemented as it is “the antithesis of pension freedoms”, and should be reversed in the Spring Budget.
The first proposal put forward by Old Mutual would see the money purchase annual allowance reduced to £7,000, which would make the allowance roughly 16 per cent of earnings up to the top of the employer national insurance threshold.
A £4,000 limit could have an impact on auto-enrolment where an employee joins a new employer that offers a generous auto-enrolment scheme. The limit could also discourage people from working in retirement.
A reduction to £7,000 would offset the potential consequences on auto-enrolment and would be more consistent with the government’s message on “fuller working lives”.
The second proposal suggests that the allowance is maintained at £10,000 and any recycling could be assessed under the general anti-abuse rules (GAAR) in a similar way to the tapered annual allowance.
Old Mutual stated that the general anti-abuse rules would act as a sufficient deterrent to manage the risk of tax avoidance and could be triggered if it is reasonable to assume that the main purpose of the pension contribution is to recycle pension income which the person is receiving, and if there is a clear link between the pension income received and the amount of the additional pension contribution paid.
This would mean that a person moving to part-time employment and supplementing their income by taking a pension benefit flexibility would not be subject to the general anti-abuse rules and normal contributions to a qualifying auto-enrolment scheme would not be caught by the GAAR.
The anti-avoidance rule would remove the tax relief given in respect of recycled pension income.
Jon Greer, pensions expert at Old Mutual Wealth, said the reduction in the money purchase annual allowance is another example of the government making a relatively small change without assessing the wider picture.
He added the limited time period for its introduction provides little opportunity to introduce alternative proposals that could meet the concern of recycling without causing potential issues for the growing semi-retired workforce.
“These proposals also do not appear to have taken into account all of the work undertaken around people phasing their retirement which the government normally encourages. It would appear to be an example of two government departments working independently in silos.
“As an industry, we want a long-term strategy to provide confidence in pensions, not plans arguably designed to raise a small amount of extra revenue for the government.”
julia.faurschou@ft.com
